Gland Pharma promoters put their 60 per cent stake on the block

MUMBAI: Promoters of Hyderabad-based speciality injectable drugs maker Gland Pharma have decided to put their controlling stake on the block, three people with direct knowledge of the matter said.

Ravi Penmetsa and family, which controls 60% of Gland Pharma, have mandated investment bank Jefferies & Co to look for buyers, these people said, adding that they are expecting an enterprise valuation of $1-1.2 billion (Rs 6,400-7,680 crore).

"They have started reaching out to global strategic players on behalf of promoters," said an investment banker with knowledge of the deal.

"The promoters are expecting a valuation of upwards of a billion for the company."

This is almost double the value the company commanded in November 2013 when global private equity investor KKR bought 37.98% stake for $191 million. The company was valued at $600-650 million at that time. KKR then had bought out another PE fund Evolvance India's stake in the company and infused some fresh capital. Evolvence India Life Science Fund in 2008 had come on board investing $30 million in Gland Pharma.

KKR may exercise its right of first refusal to match the highest bid and take over the company as per its current agreement with the Gland promoters. Alternatively, it can also opt for "put", or the right to exit, if valuations cross the expected billion dollar mark, having more than doubled the value of its 18 month old investment.

A Gland spokesperson did not respond to ET’s mail seeking comments last week. However, in an email reply sent four weeks ago, the spokesperson denied any sale plans. "Neither KKR nor the promoters are looking at exiting. We have not appointed Jefferies or any other investment bank. We categorically deny the query sent by Economic Times,” he had said then.

Sanjay Nayar, CEO of KKR in India, said: "No bank has been appointed and no sale is being considered."

Gland Pharma develops and manufactures generic injectables, primarily for selling in the US and also for India and other markets. It has a dominant position in India in low molecular weight heparin and other niche cardiovascular and orthopaedic products. It makes active ingredients and injectable formulations in osteoarthritis, anti-coagulants, gynaecology and ophthalmology.

The company reported an operating profit of about Rs 369.15 crore on sales of about Rs 1,029.45 crore in the year to March 31, 2014. Analysts, however, say such premium valuations could turn out to be a potential deal breaker. “They are largely a contract manufacturer and have out-licensed most of their products,” said a Mumbai-based pharma analyst with an FII.

However, Gland may leverage on the heightened interest in the space that coincides with global supply constraints of injectables—drugs that are widely used through vials, syringes and bags, as well as pumps used to deliver them and other fluids— that has driven many recent transactions both in India and overseas, including Pfizer's $17 billion takeover of Hospira.

Moreover, there are very few injectable businesses left in India that are independently owned after Mylan acquired Agila from Strides Arcolab for $1.6 billion in 2013. Earlier in 2009, Hospira had acquired Orchid's injectables business for $400 million. Mylan's takeover of Agila was reportedly valued at 24 (x) EBITDA & 8 (x) revenues. Considering paucity of assets available, strategic buyers are willing to pay sizeable premium for regulated market-approved injectable assets and multiples are far more than the traditional 12-14 (x) EBITDA multiples for regulated market solid dosages assets, argue analysts.

The recent Pfizer-Hospira deal, as per industry sources, was at 20 (x) EBITDA and 4 (x) revenue multiple. Pfizer also paid a 39% premium to the prevailing market price, which significant by global standards.

The total global injectable market is estimated at around $144 billion, with the lion's share being with innovators. The generic injectable sector is estimated at around $16.5 billion as per various industry estimates and is avery attractive piece going forward. Hospira, before the Pfizer buyout, was the clear global leader in the generic injectable space.

From India, Sun Pharma & Dr Reddy's are the other players which figure prominently among the powerhouses for this segment with peers like Lupin and Zydus also trying to make a mark by expanding their injectable presence. There are other smaller players like Akorn, Hikma, Perrigo & Apotex, which are trying to enhance their injectable presence.

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